The outlook for Nigeria’s telecoms market remains positive. An increasing shift towards more advanced technologies, a relatively untapped internet market, an underserved rural population, and favorable demographics are all factors that suggest the Nigerian telecoms market still has untapped potential and will likely retain its foothold as Africa’s largest mobile market for some time to come. That said, the country’s economic struggles such as high levels of inflation and FX volatility continue to undermine the profits of industry players.
Given the significant investments made by telcos in network infrastructure and coverage, we believe there is room for growth in mobile and data penetration in Nigeria's telecoms market. The continuous 4G expansion and the latest 5G deployment bode well for the sector's future. We also believe that the success of mobile money in other African countries, which are relatively smaller than Nigeria can be replicated here and this will significantly improve the topline of telcos.
Nigeria's growing population and an underserved rural market make us predict mobile subscription numbers will continue to rise, boosting telecom revenues in the long run. We expect players to compete based on factors ranging from the quality and extent of coverage of operators' networks to the attractiveness of voice and data prices. As a result, we anticipate that investments in new network technology rollouts will gain traction in the coming years.
We maintain our positive medium to long-term outlook on MTN Nigeria and Airtel. We believe both companies are well positioned to benefit from further growth in mobile and data penetration in Nigeria’s telecommunications industry. The significant investments made by MTN in improving its 4G and 5G network infrastructure and expanding data coverage should attract new customers to its network. We maintain a Buy recommendation on MTNN with a target price of N318.20/s.
Airtel has also made significant investments in network infrastructure and in expanding data coverage and this should help improve the quality of the company’s network. That said, we believe the additional cost incurred as a result of the expansion will significantly affect the company’s profitability in the short term. We note that Airtel Africa’s dual-listing status previously provided arbitrage opportunities. This has contributed to boosting the stock price significantly. Given the loss of this arbitrage opportunity, we expect prices to moderate as we have already begun to observe. We have a price target of N1466.4/s with a HOLD recommendation.
